TIGTA Shines Light on Large Tax Delinquencies of Federal Government Agencies

Published September 27, 2012

The Treasury Inspector General for Tax Administration (TIGTA) found that 70 federal agencies had unpaid employment taxes totaling $14 million, and 18 federal agencies were delinquent in filing 39 employment tax returns, as of Dec. 31, 2011, in a report issued Thursday (TIGTA Rep’t No. 2012-30-094). Although federal agencies are not subject to income tax, they are required to withhold and pay over employment taxes.

Several things contribute to this large tax delinquency, among them that the IRS is not permitted to assess penalties and interest or take other enforcement action against these agencies, and the agencies are often prohibited from using funds from one fiscal year to pay liabilities for an earlier year. There is also a lack of awareness on the part of the agencies of their tax filing and payment obligations.

The report is a follow-up to a report issued in 2007 about the same problem. TIGTA looked at tax accounts that were delinquent as of December 2008 and found that 43 were closed because the agencies had paid the amount due, 48 had their collection statutes expire, resulting in a loss of $175,594, and 40 were still open, with the IRS having suspended collection of 34 of those. The collection efforts for 14 of the accounts were suspended because the IRS was unable to contact the agency.

TIGTA made the following recommendations:

The IRS should send formal letters to the chief financial officer of each delinquent federal agency, including those whose collection has been suspended. The letter should explain options available for paying prior year tax debts.

The IRS should discuss this report with the IRS Chief Counsel’s office to determine whether any legislative or regulatory changes will be needed to permit collection of taxes due from current year appropriations.

The IRS should update the database that tracks the “cause and cure” information on the federal agency delinquency report to include better descriptions for the cause of the delinquency, which can then be used in educational outreach programs and can also assist in collection efforts.

The IRS should ensure federal agency delinquency program employees adhere to proper procedures and refer cases in a timely manner.

To determine how effective the delinquent agency collection program is, the IRS should identify tax revenues actually collected from the suspended collection actions and the delinquent tax accounts with expired collection statutes.